Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies

Zamid Aligishiev, Gabriela Cugat, Romain Duval, Davide Furceri, Joao Jalles, Margaux MacDonald, Giovanni Melina, Futoshi Narita, Chris Papageorgiou () and Carlo Pizzinelli

No 2023/005, IMF Staff Discussion Notes from International Monetary Fund

Abstract: Many emerging market and developing economies face a difficult trade-off between economic support and fiscal sustainability. Market-oriented structural reforms ease this trade-off by promoting economic growth and strengthening public finances. The empirical analysis in this note, based on 62 EMDEs over 1973-2014, shows that reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio mainly through higher fiscal revenues and lower borrowing costs. These effects are larger in countries with greater tax efficiency, lower informality, and higher initial debt. Moreover, a model-based analysis elaborates on how such fiscal gains can be enhanced when revenue windfalls associated with reforms are saved or channeled through higher public investment.

Keywords: Fiscal Policy; Debt Dynamics; Economic Regulation; Structural Reforms; Emerging Market Economies; Low-Income Developing Countries; market reform; reform impact; GDP ratio; government debt reduction; government policy response; Emerging and frontier financial markets; Debt reduction; Fiscal stance; Global; Asia and Pacific; Debt sustainability analysis (search for similar items in EconPapers)
Pages: 45
Date: 2023-09-12
New Economics Papers: this item is included in nep-fdg
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